Report states LIPA debt tops $10B

The Long Island Power Authority’s total debt, including bonds and other liabilities, has topped $10 billion, according to a rating agency report.

Moody’s Investors Service, in a little-noted report issued in conjunction with a bond issue in late September, indicated LIPA owes $10.1 billion, including slightly over $7 billion in bonds – and another $3 billion in capital leases.

Moody’s rated LIPA’s latest $250 million bond issue AAA with a negative outlook, in part due to the amount of debt.

“The negative outlook is driven by a number of challenges including LIPA’s significant leverage,” Moody’s wrote, before citing a wide range of other factors.

LIPA’s debt breaks down to about $10,000 per ratepayer based on a service area of 1.1 million ratepayers.

“Unsustainable is the operative word,” said Suffolk County Legislator Wayne R. Horsley, chairman of the Economic Development, Higher Education and Energy Committee. “Unsustainable is a vast understatement considering the overall size of their accumulated debt.”

But LIPA said the number resulted from including long-term contracts related to power, which benefit ratepayers.

“They’re capital leases, power purchase agreements. They’re not new. They’ve always been presented on the balance sheet as long term-liabilities,” LIPA spokeswoman Vanessa Baird-Streeter said. “We entered into these to secure more economic and diversified sources of energy for our customers.”

LIPA’s bond debt is just under $7 billion, which incurs interest, while the $3 billion includes contracts, such as those with the Cross-Sound cable, Caithness and Neptune Cable.

“They’re not incurring interest,” Baird-Streeter said of the contracts. “The $7 billion is debt associated with Shoreham and capital investments to the system.”

However, Moody’s said when all of LIPA’s debt is combined, it “has actually increased by more than 45 percent since 1998.”

“No one ever put two and two together,” said Matthew Cordaro, co-chairman of the Suffolk County Legislature’s Oversight Committee. “There’s more than one kind of debt.”

He said even if leases relate to power, they show up as debt and therefore are considered part of LIPA’s leveraged condition.

“It’s a flat, fixed payment you make for a number of years, usually 20 years for big projects,” Cordaro said. “They owe it. Even a bond is a contractual commitment to repay money. That’s what it is. These are long-term contracts to pay a flat sum of money.”

Although Moody’s cited credit strengths such as LIPA’s monopoly status in much of Long Island, it also cited LIPA’s “inability to reduce” its leverage “due to high carrying costs, significant capital expenditures and limited rate raising flexibility.”

Moody’s said it might downgrade LIPA’s debt if legislation passed limiting its ability to hike rates.

It also said that in 2010, only Consolidated Edison’s 25.85 cents a kilowatt hour and Hawaiian utilities’ 27.67 cents per kilowatt hour were higher than LIPA’s 20.14 cent average residential rate per kilowatt hour.

LIPA’s rates were 70 percent above the national average of 11.72 cents and 15 percent higher than the New York state average of 17.5 cents.